Source: Amazon/Tuft & Needle
How Tuft & Needle found the right balance on Amazon
Not every digital brand is a guaranteed hit on Amazon.com, but mattress startup Tuft & Needle (which recently merged with Serta Simmons) hit its stride using the platform. In a session at IRCE, Tuft & Needle chief strategy officer and co-founder J.T. Marino discussed the steps the brand took to determine if selling on Amazon was the right path and what it has discovered about succeeding on the e-tail giant’s platform since.
Founded in 2012, Tuft & Needle decided to list itself on Amazon in 2013, driven by Mr. Marino’s observation that he trusted the reviews he read on Amazon more than he would those on a brand’s own website. He believed reviews were critical to generating interest in a just-introduced brand.
“You need to have credibility markers,” Mr. Marino said. “We need something to point to that gives customers confidence to take a chance on it.”
The brand waited until its net promoter score hit 65 before listing on Amazon so that it could be certain of the product’s quality before subjecting it to uncontrolled reviews.
In terms of sales cannibalization, the brand did see some sales move to Amazon. It also, however, saw customers introduced to its D2C channel via Amazon.
Through Amazon, Tuft & Needle verified the importance of having a footprint anywhere that a customer for the product might shop. The brand determined this by running a test whereby they forced all of their customers to check out through Amazon, even when shopping the Tuft & Needle website.Â
“What happened was a very large percentage of those people found a way to contact us to still buy direct,” Mr. Marino said. “There are people who maybe don’t care where they buy, and then there are people who really only want to buy from the stores where they want to buy from.”
Mr. Marino advised brands selling on Amazon or considering other marketplaces to:
- Â Â Measure conversion rate to determine if Amazon is increasing direct sales;
- Â Â Ask if they run the risk of becoming dependent on the marketplace;
- Â Â Evaluate the customer experience of each channel.
Mr. Marino touted the value of maintaining a brand-owned D2C channel/website as a “source of truth” or “router” for the brand to orient it with respect to other channels.
Discussion Questions
DISCUSSION QUESTIONS: What calculations do you think brands should undertake before deciding to sell on Amazon or other third-party marketplaces? Is Tuft & Needle’s Amazon experience an anomaly and, if so, why do you think it was able to leverage it so successfully when other brands might have difficulty or even suffer losses?
Poll
BrainTrust
Carol Spieckerman
President, Spieckerman Retail
Michael Decker
Vice President, Marketing Strategy
I’ve been so impressed with Tuft & Needle on a number of fronts. Mr. Marino exemplifies the kind of rational thinking that is sorely needed in retail these days. Rather than buying into the absolutist never-sell-on-Amazon hysteria fomented by some pundits, Tuft & Needle simply tested the possibilities and arrived at a balanced strategy. It isn’t either/or, it’s getting the mix right and knowing your customer. Even better news? He’s in a position to help others do the same.
Businesses today need a healthy balance of where and how to sell their products. Retailers that have stores need to know how to market and stock products in-store and how to use their website for additional merchandise and convenience. When a business is using third-party opportunities to sell their merchandise such as a retailer’s stores or other websites, they too need to make sure they have the right balance so that they are not at the mercy of any one company selling their products. Amazon is an option for many companies, but it is not the be all end all company and smart business people are those who use Amazon for their benefit and not Amazon’s. These are the companies who understand how to make sales and how Amazon is another source for them but not the only source. Balance is so essential today for survival and Tuft & Needle has figured that out. Other businesses will too, and those are the companies who will have long term success.
Key metrics when analyzing if Amazon is right for your brand include: incremental sales increase potential, net margin impact, and revenue cannibalization.
For a start-up brand, Amazon can be a catalyst for increased brand awareness and has the potential to catapult sales growth.
The decision is much more complex for established brands; however, recently we have seen some of the largest retail brands succumb to the power of Amazon. With more than 50 percent of product searches starting on Amazon, many retailers don’t want to miss out on sales opportunities – even if it may compromise their brand image and reduce their margins.
ALL new brands should leverage the Amazon marketplace to expand their brand awareness and get in the game. It does get more complicated for a brand that has, say, 50 percent+ unaided awareness. The key metric you need to discern there is incremental sales. Is Amazon broadening your market share or depleting your margins? Establish baselines without Amazon and then test Amazon. Proceed accordingly!
Many brands small and large have used Amazon to their advantage, Tuft & Needle is not an anomaly by any means. The biggest mistakes we see are brands who jump into Amazon without exploring and fully understanding the different strategies and tactics for selling on the marketplace. Brands who are considering testing the waters of Amazon, or any other marketplace, need to invest time to do the needed research to ensure they understand the nuances of the channel.
Tuft & Needle is far from being alone in using Amazon well, but I do think it’s gone about it in a really effective way. As with any customer touchpoint, every brand needs to consider the value to themselves and the customer on an individual basis. The very rational and considered approach that Tuft & Needle has taken has served it well in this case. I also love the test-and-learn approach in trying out sending all orders to Amazon and seeing how customers respond. The more you know about their preferences, the better you can serve them and I think Tuft & Needle has a really good line on that. As long as it keeps evaluating and thinking and experimenting in this way, then Amazon will be in service to it, rather than the other way around.
If the discussion question is a leading one, then the answer is fairly obvious. It’s about breakeven calculations. The benefit that Amazon provides is access. Access to a consumer base like no one else has and that is difficult for a D2C company to get access to. There will also be some shift in channel shopping.
But there is a trade-off. Each unit sold via Amazon means fewer dollars in Tuft & Needle’s pocket. So the real calculation needs to be on breakeven revenue. How many more units at a lower price will make up the shift in lost in the D2C channel. Additionally, on the back end, has Tuft & Needle ensured that they have the operational capability to handle the increased demand to avoid showing back-ordered items that may cause consumers to switch to another brand?